The Remains of Informality in the Formal Sector: Social Networks and Wages in Senegal's Labor Market

Berardi, Nicoletta (2009) The Remains of Informality in the Formal Sector: Social Networks and Wages in Senegal's Labor Market. TSE Working Paper, n. 09-129

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Official URL: http://tse-fr.eu/pub/22252

Abstract

We develop a theoretical framework that considers the role played by moral hazard and the diversity of networks and cultures in the choice of hiring channel. Our model explains why either informal or formal
hiring channels are preferred and either positive or negative wage differentials emerge for workers hired through informal channels, depending on circumstances. We show that, conditional on being employed, in favoritism contexts social networks are likely to be adopted as hiring channels for unskilled jobs and to result in wage penalties and the more so the stronger the ties, while otherwise the opposite happens. We then estimate an endogenous switching model for the case of Senegal's manufacturing formal sector and we find, consistently with our theoretical predictions in case of favoritism, that informal hiring channels are preferred to full unskilled vacancies and are associated with a wage penalty. Moreover, the probability of having been hired through a social network and the absolute value of wage penalties are increasing with the strength of ties.

Item Type: Monograph (Working Paper)
Language: English
Date: December 2009
Uncontrolled Keywords: social networks, hiring channel, wage differential
JEL codes: J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.
O12 - Microeconomic Analyses of Economic Development
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 09 Jul 2014 17:08
Last Modified: 07 Mar 2018 13:22
OAI ID: oai:tse-fr.eu:22252
URI: http://publications.ut-capitole.fr/id/eprint/15021

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